EQUITY MARKET

EQUITY MARKET-Equity market is a place where stocks and shares of companies are traded. The equities that are traded in an equity market are either over the counter or at stock exchanges. Often called as stock market or share market, an equity market allows sellers and buyers to deal in equity or shares in the same platform.

HISTORY OF STOCK MARKET

1854: Dalal street fixed as permanent location

1875: BSE established as ‘the native share and stock brokers association’  

1956: BSE became the first stock exchange to be recognized under the securities contract act.

1993: NSE recognized as a stock exchange.

2000: Commencement of internet trading at NSE.

2000: NSE commences derivatives trading (Index futures)

2001: BSE commences derivatives trading.

Earlier, stockbrokers would converge around banyan tree to conduct trades of stock. As the number of brokers increased and the streets overflowed, they simply had no choice but to relocate from one place to another. Finally in 1854, they relocated to dalal street, the place where the oldest stock exchange in Asia- the Bombay stock exchange (BSE)- is now located. It is also India’s first stock exchange and has since then played an important role in the Indian stock markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian economy and finance is measured.

In 1993, the National stock exchange or NSE was formed. Within a few years, trading on both the exchange shifted from an open outcry system to an automated trading environment.

This shows that Indian stock markets have a strong history. Yet, at the face of it, especially when you consider to invest in share market, it often seems like a maze. But once you start, you will realize that the investment fundamentals are not too complicated.

WHAT IS STOCK MARKET?

The stock market is a vital component of an economy. It is a place where publicly traded companies’ stock are bought and sold, allowing investors to buy shares of a company’s stock and take ownership of a small piece of that company. The stock market is a key indicator of the overall health of the economy, as the performance of companies listed on the stock market reflects the current economic conditions.

HOW COMPANIES RAISE CAPITAL

All companies need capital to start or expand their operations. They can raise capital in three main ways:

Initial investment in the company

Borrowing from private investors

Listing on the stock exchange

WHY INVEST IN EQUITY?

To understand why equity is a good avenue for investment, it helps to compare other investment instruments in the market. In India, some popular non equity investment instruments are bank returns potential:

RISK OF EQUITY INVESTMENT 

All investments are potentially risky. Here is an overview of the risk associated with equity investment:

Macroeconomic risk

An economic slowdown, for example, may affect the stock market in different ways. though such macroeconomic  factors broadly affect all sectors, they may not have the same impact across sectors.

Political and legislative risks 

Businesses are affected by the policies of the ruling government. A new legislation could adversely affect the prospects of a particular company or a sector

Exchange rate risks 

Companies that depend heavily on the import of raw materials are hit adversely when the rupee depreciates. Meanwhile, exporters may see their profit falling when the rupee appreciates. A depreciating rupee affects the economy as a whole because the price of crude oil increase in rupee terms.

WHAT ARE SENSEX AND NIFTY?

The S&P BSE SENSEX and the nifty 50 are two of the most widely followed stock market indices in India. These indices are considered to be barometers of the Indian economy and are used to measure the performance of the Indian stock market.

The S&P BSE SENSEX, also known as the BSE 30, comprises 30 of the largest and most actively traded stocks listed on the Bombay stock exchange(BSE) in India.

WHAT ARE STOCK INDICES?

Some of the important indices in India are:

• Benchmark indices- BSE Sensex and NSE nifty
• Sectoral indices like CNX IT, CNX BANKNIFT, CNX METAL
• Market capitalization- based indices like the small cap, midcap and large cap

 

The equity market, also known as the stock market or share market, is a platform where financial instruments representing ownership in companies are bought and sold. These financial instruments are called stocks or shares, and they represent a claim on the company’s assets and earnings.

Here are some key aspects of the equity market:

1. Stocks/Shares: Investors buy shares of a company, which represents ownership in that company. Shareholders are entitled to a portion of the company’s profits and may have voting rights in certain decisions.
2. Exchanges: Stocks are traded on organized exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ in the United States, the London Stock Exchange (LSE) in the United Kingdom, and the Tokyo Stock Exchange (TSE) in Japan.
3. Brokers: Investors typically buy and sell stocks through brokerage firms. These firms act as intermediaries, facilitating transactions between buyers and sellers.
4. Market Participants: The equity market involves various participants, including individual investors, institutional investors (such as mutual funds, pension funds, and hedge funds), and market makers.
5. Indices: Stock market indices, such as the S&P 500, Dow Jones Industrial Average, and FTSE 100, provide a snapshot of the overall market’s performance. They consist of a basket of representative stocks and are used to gauge the market’s health.
6. Price Determination: Stock prices are influenced by supply and demand dynamics. Factors such as company performance, economic indicators, geopolitical events, and market sentiment can impact stock prices.
7. Market Capitalization: The market capitalization of a company is calculated by multiplying its stock price by the number of outstanding shares. It reflects the total value of a company’s outstanding equity in the market.
8. Risk and Return: Investing in the equity market carries risks. Stock prices can be volatile, and there is no guarantee of returns. However, historically, equities have provided higher returns over the long term compared to many other investment options.
9. Regulation: Equity markets are subject to regulatory oversight to ensure fair and transparent trading. Regulatory bodies, such as the Securities and Exchange Commission (SEC) in the United States, set rules and regulations to protect investors and maintain market integrity.
10. Global Nature: Equity markets are interconnected globally. Events in one part of the world can impact markets worldwide due to factors like globalization, trade, and interconnected financial systems.

Investors participate in the equity market with the goal of capital appreciation, dividend income, or a combination of both. It’s important for investors to conduct thorough research, diversify their portfolios, and be aware of the risks associated with equity investments.